tv Nightly Business Report PBS December 11, 2012 4:30pm-5:00pm PST
>> tom: good evening. i'mom hudson. the fiscal cliff debate hits the floor of the u.s. house but not much progress is made. warren buffett and others tell lawmakers to look for more money from the estate tax. >> susie: i'm susie gharib. could another major bond-buying program be on the way? what we could hear tomorrow as federal reserve policymakers wrap up their two-day meeting. >> tom: ever wonder what goes into making those cardboard store displays? tonight, we look at how one box company is using them to reinvent itself. >> susie: that and more tonight on nbr! >> tom: an agreement to ease the fiscal cliff may not be wrapped up and waiting under your tree for christmas. senate majority leader harry reid said today it would be hard to get an agreement finished by the holiday, blaming the delay on republicans. not surprisingly, republicans say the president hasn't gotten serious about the talks. plenty of outside groups are offering up suggestions. and as darren gersh reports,
they include warren buffett and some other big names in finance. >> reporter: there was some public movement in the fiscal cliff standoff today. instead of holding dueling press conferences, republicans and democrats traded barbs on the house floor. >> where are the president's spending cuts? the longer the white house slow- walks this process, the closer our economy gets to the fiscal cliff. >> reporter: behind the scenes, progress is being made, but democrats are still arguing they've given ground in previous budget battles. that's one reason they are holding firm on higher taxes now. >> $1.6 trillion in cuts. "where are the cuts?" they are in bills that you, mr. speaker, he voted for. >> reporter: and there were new calls for more tax revenue today. warren buffett, vanguard founder john bogle, and financier george soros were among the famous names to call for a tougher estate tax. their proposal would exempt couples with up to $4 million in assets from the estate tax. above that level, estates would
pay a 45% tax rate, rising to 50% or more on very large estates. supporters say that would both bring in badly needed revenue and help protect our democracy. >> it works to reduce concentrations of economic and poticapoweacro generations, and those concentrations are antithetical to the basic premise, if you will, of the founding of our republic, which was that it was a land of opportunity. and i think that those concentrations also can play a significant role, concentrations of economic and political power across generations, in distorting the functioning of our democratic political system. >> reporter: but raising the estate tax is unpopular even among many democrats who worry it will hit farmers and small businesses. and tax analysts say the estate tax is just too complicated to tackle in thfiscal cliff negoations. >> if we get to a comprehensive reform of the tax system and we say, "okay, here is the income tax. this is what we are going to do. now, we need an estate tax to back it up," maybe you could change the estate tax in that setting.
but just one off, i think that's hard to do. >> reporter: if congress doesn't act soon, the current $5 million estate tax exemption will fall to $1 million on january 1, though it is unlikely to stay there for long. darren gersh, nbr, washington. >> susie: the fiscal cliff was certainly one topic on the agenda of the federal reserve today as policymakers kicked off their two-day meeting. tomorrow, the world will be waiting to see whether the central bank will do more to prop up the u.s. economy. the big question is whether the fed will stick with its so- called "operation twist" bond- buying program, or will it announce something new? erika miller takes a closer look at what's expected. >> reporter: the fed may announce a new twist in its bond buying plans, but that doesn't necessarily mean the stock market will shout. at it's final meeting of the year, the central bank is not expected to simply tend its operati twist program. that's the nickname for the fed's strategy of buying long-
term treasuries and, at the same time, selling an equal amount of shorter-dated bonds. that's important because it keeps the bank's balance sheet the same size. now, the fed may be ready to do a new stimulus dance. >> under twist, they've been purchasing $45 billion longer term treasuries while at the same time selling $45 billion short term. they've pretty much run out of short-term stuff to sell, so i think they'll be continuing to purchase the long term, but purchasing outright, expanding their balance sheet. >> reporter: and that would be on top of $40 billion a month already committed to buy mortgage-backed securities. some experts worry that $85 billion a month in spending will escalate inflation and, eventually, it could cause market disruption. >> at some point, they're going to run into issues of market liquidity, with holding such a large share of the outstanding treasury notes and bonds. so, they run the risk of market dysfunction by trying to stimulate policy further.
>> reporter: but he and others think it's a risk worth takin particularly with no agreement to avoid the fiscal cliff. economists warn that if higher taxes and less government spending go into effect for many months next year, the u.s. could sink back into recession. so expect reporter questions on that topic at the fed's question and answer session after the policy announcement. >> he's going to reiterate to politicians to get their acts together for some sort of long-term deficit reduction plan. >> reporter: the stock market often rises when the fed announces economic stulus measures. but that may not happen tomorrow. some experts think the overhang of the fiscal cliff will likely dampen investor enthusiasm. erika miller, nbr, new york. >> tom: the latest economic statistics the federal reserve can consider is the october trade balance, with american importing a record amount of stuff from china. that increased our trade deficit to $42.2 billion.
u.s. exports fell 3.6%, the biggest drop in almost four years. imports also fell, down 2.1% to the lowe in month n ll street,he dow gained 78, the nasdaq rose 44, the s& up nine. >> susie: our next guest says the fed's stimulus policies have been good for the u.s. economy and the markets. he's mike holland, chairman of his money management firm, holland and company. >> susie: mike, you heard erica's report. which do you think is more important for investors, fed policy action tor the fiscal cliff talks? >> right now, susie, the fiscal cliff talks are clearly the item dejure for the stock market. i think most people expect exactly what eric miller was talking about from the fed. and bern bueno ben bernanke hasn transparent and telling people well in advance what he is going to do.
the $85 billion should continue building up for our taxpayers balance sheet. >> susie: how does all of this play out in the markets. all of the bond buying, companies are still lding off from hiring and spending, and now the risk, possibly of a recession. how does it play out in the markets for 2013? >> what has happened, with all of this cash going into the market -- into the economy, not only from the u.s. fed, but from europe, from the central bank there, as well as from china, don't forget, so we've had this liquidity which has taken asset prices with the stock market and the bond markets, pricing it way up, it is actually helping housing after a long wait. moving into the future, there will be some duction in relythe fear that people have. it is not only a lack of confidence, but it is a fear of things going wrong. as we get day to day, i think the fed has been the only place in town to inject some optimism or
feeling somewhat better in the general public, as well as in business. until we get through this silliness in washington, i think people will continue to be cautious. >> susie: speaking of that caution and fear, what should investors be doing with their money. so many of them, not only individual investors, but professional investors are sitting on a pile of crash. ldof o invest? what is your investment strategy? >> people, the viewers right now, many of them have been out of the stock market for an extended period of time, because of all of the craziness of the last decade. i think some of them should consider taking a little bit of their money, and putting into good things that are getting very good dividend yields. so stocks around the world, not just in the u.s., are yielding more than they have ever. asia, some good yields over there. if you look at apple's stock, well down from over 700 to 500, yielding 2%.
the 10-year treasury is yielding less than that. so looking at stocks makes some sense. fixed income markets actually scare me a little bit, the bond markets because it is so low yield and high-priced. >> susie: mike, can we squeeze in a chetio question about china. a lot of investors are wondering about the investment in china. a lot of american companies saying they're seeing a real slowdown. what is your take on china? >> there isno question they had a slowdown engineered by the government. they did a slowdown in 2008 and 2010, and they said they're going to stop that. and business has bottomed out and is in fact, turning up. it is interesting, susie, in the last week, december 3rd, the most recent bottom in the shanghai market, which has been a being downer, does pit the market going up
6.5%, and the marketis up 6.5%. so the markts beginning to believe it is getting better as well. >> susie: thank you very much, mike, mike holland and holland and company. and tomorrow tonight, we'll have more analysis on the fed decision. mohamed el-erian joins us. he's the c.e.o. of pimco. >> tom: still head, british bank hsbc agrees to pay a record fine for laundering mexico drug money. >> susie: it's a major hit to organized labor-- michigan
approved legislation today that would greatly limit labor rights. protestors swarmed the state capital as lawmakers passed a bill prohibiting unions from requiring employees to join and pay dues. the move would make michigan, one of the most union-friendly states, the 24th "right to work" state, where union dues are voluntary. >> tom: more bumpy skies for boeing's 787 dreamliner. boeing's much anticipated and high-profile plane was grounded last week, according to "the new york times." the federal aviation administration also has ordered that fuel line connectors on all 787s be inspected. analysts call these problems minor hiccups. but as sylvia hall reports, the dreamliner's profitability to boeing right now is raising bigger concerns. >> reporter: boeing's 787 dreamliner promises to use about 20% less fuel than other planes. that's a big deal for an airline industry struggling with fuel costs. so far, boeing's sold more than 800 of its dreamliners, but the project has been plagued with
three years of costly production delays. the company is ramping up production on the planes, but some analysts don't expect the company to see a profit from the line until at least 2020. the reason? the dreamliners are probably sold at discounts, which is normain ts industrybut boeing's production costs aren't going down fast enough to match. >> assuming a 30% discount, boeing would have to deliver at 10% operating margin on the 787, which seems highly unlikely. that would take them through the next seven years of production. >> reporter: analysts expect the 787 to be a drag on boeing's earnings for at least three more years, but think the dreamliner will deliver in the long run. >> if we get beyond that and say, "you know what? boeing 787 is a pretty good product, and customers really like it, and airlines can charge a premium for that type of product. but in the futu, bend these 850-odd orders, they're goingo mae prty gd money on this product." >> reporter: a boeing spokesperson told me today the company has reduced the cost of making each plane by 50% from the first one to the 66th, and overall, boeing is very pleased with the dreamliner's progress.
sylvia hall, nbr, washington. >> tom: british-based bank hsbc will pay a record fine to settle allegations it laundered hundreds of millions of dollars in illegal drug money. u.s. prosecutors say mexican drug cartels used europe's biggest bank to wash their profits, transferring billions of dollars with little compliance oversight by the bank. hsbc also was accused of allowing $660 million in transactions to be done in violation of u.s. financial sanctions against countries like irancuba and libya.
hsbc will pay fines totaling $1.9 billion. it also will beef up its monitoring of suspicious financial activity. in august, a different british bank, standard chartered, paid $340 million to new york state, settling claims it laundered hundreds of billions of dollars for iran. sarah jane hughes is a law professor at indiana university. she joins us from bloomington. >> tom: professor, does this punishment for hsbc fit the crime? >> well, the parties clearly think that it does. >> tom: at $2 billion almost, it is cerinly gnificant largerthan the standard charter settlement from earlier this year. why the big difference? >> the duration, the number of individual violations, the number of countries involved, the fact that mexico is also involved. many factors. >> tom: let's talk about the global nature of this. to put it frankly, is money laundering a business model for global banking? >> well, money laundering is certainly a business model. and the united states has sent clear signals this year and before that it does not want it to be a
business model for global banking. >> tom: but yet we still have two banks here that have paid the fines to settle the claims. how profitable is this kind of money laundering? >> i think we have to assume that the profits are huge and that that's a reason why the banks have been willing to run the risks of being caught. >> tom: is there more attention being paid to money laundering, or is it more prevalent letein leading to these kinds of settlements? >> i think the united states has a record now of pangttention tooney laundering and violations of trade sanctions with governments like those you mentioned. these have come after 9/11, and recently the degree of effort by the federal government to signal clearly that they do not want global banks to launder money or to transfer funds for rogue
governments, like iran, sudan, and libya or syria, is very clear. >> tom: so do these kinds of settlements make the money laundering business that much more unpalatable for public companies, like these big global banks? in other words, is it going to deter future dealings? >> the cynic in me says they may face pressure from shareholders to produce profits, and these are very profitable lines of business because they may involve some risks to individuals, so until people really pay attention, and the government shows how serious it is about enforcing its laws, i don't think we can conclude that this is over. >> tom: among those people, shareholders, but also costumers. what do you think these kinds of business practices say about the global banking business. >> i think we have giant costumers and small costumers. and most of the people involved at this level are giant costumers.
they are states and american businesses and banks are not supposed to do business with. the europeans have similar attitudes about this. they are large corporations, and also some smaller companies that may or may not know thetransactio th're engagd volv some of these other governments or they represent mexican drug cartels. >> we have money banking, sarah jane hughes with us. >> susie: in a separate banking scandal, three british men were arrested today in london for their involvement in a global interest rate rigging scandal. international prosecutors have been investigating banks for manipulating a key interest rate called libor that's used to set borrowing rates on everything from mortgages to credit cards. today's arrests are the first after a four-year investigation. >> tom: let's get going with tonight's "market focus." the stock market took its cues once again from washington and
the rhetoric over the fiscal cliff. it was the fifth straight session of gains, with the buyers out at the opening bell. the index lost some momentum around 2:30 eastern time, something traders blame on comments from senate majority leader harry reid. reid said it would be extremely difficult to get legislation averting the fiscal cliff through the senate before christmas. with today's seven-tenths of a percent gain, it brings the index back to a level last seen on election day. for the year, its up 13.5%. trading volume increased to 691 million shares; just over 1.9 billion shares on the nasdaq. the technology sector was back in the leader position, up 1.4%. health care and telecommunications were up 1%. with the tech sector up, apple was helping out as it rebounded a little from its recent sell- off, but on lighter volume. shares rose 2.1%. piper jaffray's apple analyst predicts a more steady stock rally next year, and he's stking with his $900 ice taget. it was a pair of business software firms that had the best
percentage gains inside the tech sector. citrix systems jumped 4.8%, closing at a two-month high. salesforce.com gained 4.2% to close at a new high. meantime, two big semiconductor makers were in focus as they work to meet the competition intel gained 2.8% to a one-month high. it said it is on track to launch a new generation of semiconductors for smart phones and tablets, a market where intel has been lagging. texas instruments gained 4% after it pushed up the high end of its profit forecast for this quarter. with the government pricing its sale at $32.50 per share, the stock rallied close to that price. shares gained 5.7% on very heavy volume. with this sale, the government bailout of a.i.g. at the depth of the credit crisis will now turn a profit. we have a closer look at a.i.g.'s stock chart on our web site, nbr.com. click on the blogs tab and look for michael kahn. all five of the most actively traded exchange traded products were up.
the biggest gains in the nasdaq 100 train fund, up 1.3%. and that's tonight's "market focus." >> susie: this is the time of yearhen many compani ring up most of their annual profits. but some companies are finding ways to boost the bottom line year-round. diane eastabrook tells us about one chicago business that's making money by refusing to get boxed in by tradition. >> reporter: this is the unglamorous side of chicago's ideal box company. it's where workers and machines convert paper into corrugated boxes.
this is the glamorous side. it's where graphic artists design cardboard store displays by computer. then, industrial designers fashion them into something like this. >> it's a bit of a corn stalk, and so the wood crates sort of show that farmer's market look. >> reporter: ideal president scott eisen says thinking outside the box is keeping his family's 92-year-old corrugated box factory relevant in the 21st century. >> displays are not only a better margin, but it's the reason customers will come to us, because we have to conceptualize and do the renderings and come up with the innovations of "how do i sell my product at retail?" that's where we're really good. >> reporter: eisen and his brother yale say they turned ideal into a sort of boutique manufacturer a decade ago because the box business had become so cutthroat. >> it wasn't really a choice. it was either not be around or completely change how we did business >> reporter: the eisen's great grandfather started this company back in the 1920s making wooden
crates. one of his customers was al capone. the company began making corrugated boxes in the 1950s, but by the 1990s, that business had gotten very crowded and the margins were extremely thin. >> it's a very competiti market beuse you arcomping against the publicly traded guys that have their own box plants, and you're competing against hundreds of other converters to win business. and the way to really differentiate yourself in that business is to focus on timely deliveries, design, and customer service is the main differentiator. >> reporter: while the eisens still call ideal a manufacturer at heart, the company derives most of its volume and revenue from the displays it designs. the company made about $100 million in revenues last year, and has be growing sales between 15% and 18% annually over the past few years. eisen thinks u.s. factories like his can continue to thrive if they listen to their customers
and stay nimble. >> you know, we could decide to make something completely different tomorrow if we felt that's where the market is. >> reporter: diane eastabrook, nbr, chicago. >> susie: tomorrow on nbr, diane will have more small business coverage and will look at how some companies are preparing for the new health care rules that are coming soon. plus, both colorado and washington state voters ha okayed marijuana. we talk with one company already profiting from medical marijuana products. >> tom: the college football bowl season is a lesson in supply and demand economics, showing how the market economy works for the same seat in the same stadium for two different games. here's rick horrow with tonight's "beyond the scoreboard." >> reporter: they're two of the biggest games of the college football season, but despite being played in the same stadium just six nights apart, interest in the discover range bowl and the b.c.s. national championship
game couldn't be more different. the average ticket price for the title game between traditional powers alabama and notre dame is a whopping $2,400, which is more expensive than two of the last three super bowls. the game likely will be the most-watched event in cable tv history, with more than 30 million people expected to tune in. both alabama and notre dame will pocket $22 million for the appearance. for the orange bowl, florida state and northern illinois will reive the same pay-outs, but the similarities between the two games end there. orange bowl tickets average $100, but start as low as $8. on tv, the match-up could struggle to get seven million viewers, and may end up the least-watched b.c.s. game ever. so while the pay-outs to schools may be the same, clearly, all b.c.s. games aren't created equal. i'm rick horrow. >> susie: that's "nightly business report" for tuesday, december 11. have a great evening, everyone, and you, too, tom. >> tom: good night, susie.